Stocks and Precious Metals Charts - Fearless, Into a Three Day Weekend - CrashTrak

 

"Bear market rallies, or 'relief rallies,' are sharp upward spikes in prices on the US equity markets.  They are fed by short covering.  Those who are short, or have positions based on the assumption that the stock market is going lower, are forced to buy stocks either from fear of losses, or because they are undercapitalized and overleveraged.  The leverage may be in terms of time (as in the case of stock options) or money (margin).

The bear market rally consists of a violent opening spike.  That spike will be up to the nearest strong overhead resistance as the short sellers panic.  Then the market will pull back, because there are no serious buyers yet to sustain the prices, and the early shorts have covered.  Also, insiders will begin to feed their dog stocks into the public markets.

The prices will pull back to the nearest support.  Once the bulls feel confident again, the buying will resume, this time more slowly as naive speculators begin to succumb to the 'good news.'  The highwater mark of the opening price spike will be a definite target for this secondary move higher.  Often the initial effort to find support fails, and the bullish sentiment will pull back and try to find stronger support from which to resume the price advance.

Very infrequently there is a 'failure to rally' and a failure to find support at a near support level.  Buyers (also known as 'the greater fool') are not to be found, and the dip buyers panic, and a freefall ensues.  This also can be quite breath-taking, as the insiders are selling not buying, and the small speculators are exhausted and starting to panic.  This is an uncommon event, but can be quite damaging if you are caught on the wrong side of it.  This is how we came up with the term 'chasing nickels on the freeway' to describe it.  Buying the dip in price in bull markets is easy money; buying the dip in bear markets is for gamblers.

The best way for most traders to play these markets is to stay out. The opportunity to be whipsawed is very high. Take a break. Go for a walk. The market will always be there. The greed of 'lost profits' pulls you back in, and then fear will take you out, on a stretcher if you are not careful. 

Controlling one's emotions in volatile markets is the primary challenge for experienced traders."

Jesse, Bear Market Rallies, 17 July 2008


US markets will be closed on Monday for Memorial Day observance. 

Stocks were in rally mode today, what looked like a proper bear market rally.

Considering we have seven weeks of weakness and declines as we *finally* set that second low we have to say that it's about time.

Now let's see if bully can keep the squeeze going, or not.

With the general risk on atmosphere, the Dollar and VIX were lower.

The VIX is now back down to its 50 DMA which has marked a support level in the recent past.

Gold and silver were trying to break out this morning, but were smacked down lower in the general exuberance. 

Next week may be pivotal.

For the rest of the world, try to carry on with US guidance on Monday.

Have a pleasant weekend.

Stocks and Precious Metals Charts - C'est la Guerre - Europe Roiled by 'Flash Crash'

 

"Citigroup Inc.’s London trading desk was behind a flash crash in Europe that sent shares across the continent tumbling after a sudden 8% decline in Swedish stocks.  The sell off was triggered by a large erroneous transaction made by the U.S. bank’s London trading desk, according to people with knowledge of the matter who asked not to be identified discussing private information.  A knee-jerk selloff in OMX Stockholm 30 Index in five minutes wreaked havoc in bourses stretching from Paris to Warsaw toppling the main European index by as much as 3% and wiping out 300 billion euros at one point." 

Bloomberg, Citi’s London Trading Desk Behind Rare European ‘Flash Crash’, 2 May 2022

 

"Plus ça change, plus c'est la même chose." 

Jean-Baptiste Alphonse Karr, Les Guêpes

 

"The market was thrown into confusion on 2 August 2004 when Citigroup pushed through EUR11 billion in paper sales in two minutes over the automated MTS platform.  As the value of futures contracts fell and traders moved to cover their positions, Citigroup re-entered the market and bought back about EUR4 billion of the paper at cheaper prices.  

The strategy was dubbed Dr Evil, after the Austin Powers character, in an internal e-mail circulated by the traders.  Immediately afterwards MTS moved to impose temporary limits on the value and volume any one dealer can push through the system at a time.  MTS also suspended Citigroup from trading on its bond network for one month after finding that the UK bank breached certain market regulations." 

Finextra, Citi bond traders indicted over 'Dr Evil' trade, 19 July 2007

 

"In a community where the primary concern is making money, one of the necessary rules is to live and let live.  To speak out against madness may be to ruin those who have succumbed to it.   So the wise in Wall Street are nearly always silent.  The foolish thus have the field to themselves.   None rebukes them." 

John Kenneth Galbraith, The Great Crash of 1929 

 

Seriously, how can one expect a multi-billion dollar trading platform or its regulators to bother with safeguards and protections against sociopathic rogue traders or systemically critical 'typos.'   LOL

The watchdogs of the fourth estate was too busy swooning over the international cast attending the Michael Milken conference at the Beverly Hilton to be concerned about any of these market-busting, existential questions.

Stocks were slumping hard today, confirming those lower lows.

And then we saw a miraculous bounce in the afternoon to take them back to the green. 

Sounds like a bit of bottom dithering and then a bounce.

Who could have seen that coming?

Gold and silver were slammed today, ahead of the FOMC on Wednesday and the Non-Farm payrolls on Friday.  

 What a surprise.

Although silver bounced back a bit in sympathy with equities.

The dollar bounced back up to the higher 103 handle.

What will they think of next?

Below is an update to the market dislocation 'CrashTrak' model.  

As a reminder, major market dislocations are low probability events, even at this stage.  

And we are not looking at the number of times that the markets have traced this pattern, and it has not worked out to a major further decline.

The next two steps in this model are by far the most important.  So far this is just flirting with disaster.

And as always, we may recall that we are in the modern era of major market intervention with easy money.

Have a pleasant evening.

 

 

Stocks and Precious Metals Charts - What Time's the Next Black Swan? - Down to Key Support

 

"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revival, but finally giving up in the final collapse."

Charles Kindleberger


"They run all away, and cry, 'the devil take the hindmost'."

Beaumont and Fletcher, Philaster, or Love Lies a-Bleeding


“It has been more profitable for us to bind together in the wrong direction than to be alone in the right one.  Those who have followed the assertive idiot rather than the introspective wise person have passed us some of their genes.  This is apparent from a social pathology: psychopaths rally followers.”

Nassim Nicholas Taleb, The Black Swan
 

"Through a set of economic policies designed to bail out and subsidize failed and often tainted corporate enterprises, while actively promoting a false sense of confidence to support those policies, the public has become exposed, by those very people entrusted to protect them, to dangerously high levels of hidden counterparty risks. 

The cautionary functions of the media, the political class, and the regulatory bodies have been routinely directed, distorted, and even silenced for the benefit of a highly compromised and increasingly self-serving elite.  And this corruption has begun feeding on its own momentum, resulting in increasingly blatant examples of deception, distortion, and outright theft.  This is crony capitalism, and its deadly credibility trap." 

Jesse, April 2012

 

Stocks retraced the bounce from yesterday, but managed to hold at key support levels.

We may be one exogenous event away from a significant market dislocation.

Precipitous declines of 10+% are always lower probability events, but sometimes the tails are little fatter than at other times.

Gold and silver bounced.  Silver in particular was impressive since it diverged from stocks. 

The VIX fell.  

There is not panic selling yet.   I suspect the specs are buying the dips.

I came in short from last night and got a little shorter on the early bounce.   I trimmed back a bit for the weekend. 

If the major stock indices break below further key supports with the right kind of tension on the tape I will try to start calculating just what kind of decline we may be facing.  

The Fed is active in the markets.   But even they have a limited ability to respond to a significant event.

Stock index option expiration next Thursday.

As next week is Holy Week I will be posting but it may be late or abbreviated.

Have a pleasant weekend.

Stocks and Precious Metals Charts - The Madness of Herds - New Highs Needed to Sustain Speculative Froth

 

"At what point shall we expect the approach of danger?  By what means shall we fortify against it?--  Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow?  Never!-- All the armies of Europe, Asia and Africa combined, with all the treasure of the earth (our own excepted) in their military chest; with a Buonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years.

At what point then is the approach of danger to be expected?  I answer, if it ever reach us, it must spring up amongst us.  It cannot come from abroad.  If destruction be our lot, we must ourselves be its author and finisher.  As a nation of freemen, we must live through all time, or die by suicide." 

Abraham Lincoln,Lyceum Address, 27 January 1838

“Through pride we are ever deceiving ourselves. But deep down below the surface of the average conscience a still, small voice says to us, something is out of tune.”

Carl Gustav Jung 

 

 “Pride gets no pleasure out of having something, only out of having more of it than the next man. It is the comparison that makes you proud: the pleasure of being above the rest.

As long as you are proud you cannot know God.  A proud man is always looking down on things and people; and, of course, as long as you are looking down, you cannot see something that is above you.”

C.S. Lewis, Mere Christianity

Stocks went on a tear higher today in celebration of the lousing housing numbers this morning.

And because they can.

Gold and silver made a  rally attempt, and managed to hang on to some of it into the close, silver a little moreso than gold.

A huge tranche of gold showed up in Hong Kong.   

Funny how a big smackdown in the paper price and a scraping out of the ETFs manages to show up there, given a little time.

The Dollar finished lower.   All a part of the lousy economic news being good for the bankers, moneyed interests, and their bubbles.

Tough times ahead.   

In fit of emotion people are going to do very dumb and willful things that hurt more than themselves, although eventually they will be falling away in numbers that may be alarming.

"There have always been plagues and wars, yet they always take us by surprise.  Stupidity has a knack of getting in the way, which we would see if not wrapped up in ourselves.  In this our townsfolk were like everybody else— they did not believe in plagues." 

Albert Camus, The Plague

The bulls are smelling new highs in stocks, almost within their grasp.

If they fail to make those new highs, things may get interesting, quickly.

They may get a few tries at it, but don't miss.

The underpinnings of the equity markets is speculative froth.

Have a pleasant evening.

Stocks and Precious Metals Charts - Watchfulness - Stock Option Expiration on Friday

 

Another well-crafted bubble, shot to hell?

"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revival, but finally giving up in the final collapse."

Charles Kindleberger 

 

"Simply put, a market dislocation is when a sustained bubble begins to wobble and fall apart, and the realization comes generally that it is collapsing, with all participants remaining invested heading for the exits in a mass panic.  These patterns of collapse tend to have a common framework. 

The challenge is separating a market dislocation from an ordinary correction.  In our work, we have arrived at some hallmarks that characterize a market dislocation, which as you know is always a low probability event.  

The setup for a market dislocation begins with a sustained increase in price (the Ramp) to a significant new high (the Top) over a period of time which is multiples of the subsequent decline. US equity markets saw such a top late last year in October. 

From there the first assault in confidence occurs as profit taking, creating a decline more significant than the declines serving as corrections up to the Top.  It is usually an initial decline of ten percent or greater. Often we get an uncharacteristic decline. The rally back from this first low not exceed the Top (obviously) and is referred to as the Second High (with the TOP being the first or highest high). It can be equal to the TOP. The next low must set a lower low, ruling out a double bottom.  It is preferable but not necessary that the Lows be noticeably lower than the Highs. 

The lower the lows, the more likely that the dislocation will mark the start of a bear market rather than just a market clearing event like the Crash of 1987.   It is not uncommon to reach this point, and the vast majority of times will merely be an A-B-C correction.  The next step is a critical differentiator, the Failed Rally.  If there is a bounce of 2 to 5 percent that fails to gain momentum, and drops back to a lower low, and fails to rally again from there, it sets up a higher than normal probability of a market dislocation which we define for our purposes as a market decline of 30 percent or greater within a one year period." 

Jesse, Crash: the Rally that Fails as Hallmark of Major Market Dislocations, 27 January 2008 

 

Stocks continued a leg lower today after the release of the Fed Minutes showed additional discussion of instituting a taper in purchasing towards the end of the year. 

This looks so far to be just a correction for 'technical reasons' ahead of the stock option expiration. 

Gold and the Dollar were unchanged. 

Silver was off a bit. 

Have a pleasant evening.